Perspectives on the Plastic Resin Market
Plastic Demand Exceeds Available Supply
Canadian Packaging magazine, October 27, 2005
|The Plastic Eye Of The Storm|
Everyone knows how the recent spate of hurricanes through Texas and Louisiana crippled families and communities to the point where they may never recover. People may also be aware about how a number of major oil refineries were damaged during the storms contributing to the price of oil to hit shocking highs. But, are you aware of how the storms have directly affected the plastics industry?
From every barrel of oil, a very small percentage is designated towards the plastics industry. As such, the price for ethylene, a derivative of oil, has gone through the roof. In recent months, natural gas – an essential fuel in the manufacture of resin – has more than tripled in price. Both ethylene and natural gas are essential fuels in the manufacture of resin.
Wanting to push the price of resin higher, years ago resin companies decided against adding capacity and improving productivity at their plants. The result has been a stagnant supply and an increased demand, all of which means resin prices have gone up sharply. However, resin companies failed to anticipate that their non-fair weather friends, hurricanes Rita and Katrina could hurt them. And, along with a destructive fire at a major ethylene manufacturing plant in Florida, demand has now far outweighed supply causing the plastics industry to be very concerned.
Some plastics companies will be hurt by the rise in resin costs. Many will be able to ride out the storm, while others could fall by the wayside.
Plastics companies who have excellent relationships with their clients and will work with their suppliers to fairly distribute the increases throughout the supply chain will come through this challenge in the best shape. Some plastics companies may be forced to declare force majeure, voiding all previously quoted jobs and contracts thus pushing the increase onto their suppliers. That could cost clients, jobs and competition and likely higher prices for the consumer.
Somewhere watching the storm surge.
Reprinted with permission. Courtesy of Andrew Joseph, Canadian Packaging magazine
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